ElectroFX Pure Price Action Trading

[tkpower8]

Hello T2W Members,

I would like to start this thread to discuss trading Forex using nothing but Price Action, some people like to call it Naked Trading but I am dressed so I will stick with Price Action Trading

THIS IS A SET AND FORGET APPROACH TO TRADING THE MARKET ACCURATELY WITH LESS TIME STARING AT CHARTS AND THEREFORE LESS EMOTION

My first message will be to Newbies:
You are actually very lucky in some respects. You have a fresh perspective, do NOT cloud your new fresh Forex eyes with silly Indicators and squiggly lines. Everything you need to know lies within the price charts themselves. It keeps it very simple, gives you accurate information to base your decisions on without needing all the planets to align.

If you are not a Newbie:
Even if you have been working with fancy Indicators I implore you to focus more on Price Action. Unless of course you have something that works for you continuously throughout all the different market conditions. If you do then perhaps having extensive knowledge of Price Action concepts will help you to become even more accurate. Either way this thread will contain no Indicators.

Moving on....
I will introduce you to what I mean briefly then wait to see who is interested in hearing my opinions on trading, please post your interest and I will gladly continue the thread .

What exactly do I mean by Price Action and how do I trade?
Price Action is a massive topic that will take many posts and many questions but in summary price action can be broken down like this.

Support/Resistance (SR):
Also know as Supply and Demand, SR are simply areas on your chart where price is likely to change direction. SR could be traded all by itself if you were smart about your Money Management and Risk Reward but in my world it is just 1 of the core price action concepts that I combine.

Trend Lines (TL's):
Trend Lines can be very accurate tools but it is important to only place them when there is an obvious trend being born. They can be looked at as Angled SR and I like to use TL zones instead of single TL's just as I look at SR as a small area and not just a single price.

Highs and Lows (PA):
You're probably thinking why have I abbreviated this "PA". The quick answer is that everything else to do with Price Action has it's own name like SR, TL's etc.. so instead of having to say "The highs and lows being made in price swings" or "The swing highs and lows" I just call this price action (PA)

Candlesticks:
I don't need to abbreviate this piece of price action because it is just one word . Candlesticks are basically little pictures that tell you a small story about a specific period of time. If you use 4 hour charts for example then each candle can, at a glance, tell you a small story about that 4 hours. They will show you when there is Indecision or not. At the correct location (determined by SR, TL's and PA) you can use these little pictures to act as entry triggers.

Psychological Levels (PL's):
A final part of the trade decision process is to check for nearby levels of interest like 1.61000 as a major example. I break this down in to Major, Secondary, and Minor Psychological Levels. This is the final part of the entry point decision and only leaves for you to check the Risk Reward on the trade you are about to enter, make sure it is worth your time.

Money Management (MM):
I like to keep this one simple and generally round it off to safe trading being 0.1lot per $2000 in your account. I occasionally get aggressive and consider 0.1lot per $1000 in your account to be a maximum level of aggression.

Risk/Reward (RR)
This can make or break a trader right here. RR should not be ignored. I mean, what is the point of risking more than are aiming to get? It makes no sense but lots of amateur traders do it anyway. When you trade purely from price action then you have an exact price that you are waiting to enter the market at, you already know what your stop loss (SL) will be and you are able to see what a conservative take profit (TP) is also. This means that before you enter the trade you can judge your RR. If you always maintain that 1:1 minimum then winning 60-70% of your trades will make you a successful trader. However, when trading all these price action concepts I outline you are able to trade with the trend resulting in many trades that are 1:2 or 1:3. If your 1:1 is a minimum but you are trading with the trend and many times you get 1:2 or 1:3 then winning even 50% of your trades makes you a successful trader.

All that said, a 70-80% win rate is obtainable if you maintain a level of patience and discipline.


Well, that is my opening blabber and as I said I would be happy to continue if there is interest.
I have been teaching people all about price action trading for a few years now and I love watching people succeed, I will warn you though that my experience in teaching has shown me that it does take a while for anyone to get all of the price action concepts and get used to using them harmonically together.

 

[tkpower8]

Quick look at one of my charts

Just so you can understand how my charts look

 

[tkpower8]

2 types of trading

I will be teaching you all about using Price Action for:

Swing Trading
&
Breakout Trading

The main focus is swing trading but various breakout techniques can be used to add to your position as it goes further in to profit. I will save that for much later on though.

1 thing at a time

 

[tkpower8]

Swing Trade Example

Using that same image above here is a clear cut swing trade that set up based on my rules.. which as you will see soon enough are very black and white.

 

[tkpower8]

An Example Trade

So in this Image we have what I called the Core Trade.

Price broke through an Established TL
The PA created a Lower Low,
then in order to judge our Lower High entry with reasonable SL,
(and not have to use the previous High for SL)
We watched a new Resistance area be created,
then once that Resistance area was re-tested and a PinBar formed,
There is a nice entry point, SL, and TP all mapped out before entry.
This allows RR to be judged which in this case was 1:2

 

[tkpower8]

Re: An Example Trade

So lets use the last image I posted just above and make sure everyone understands everything I explained about that particular trade.. even right down to the reasons behind me drawing that TL where I did.

So please ask questions or at least confirm that you understand every single element of the trade as I explained it.

I believe everyone should understand each example in full before moving on to the next.


One more explanation from me before you ask questions though:

When I look at the move UP I see 3 waves of movement upwards with the 2 pullback waves. By looking at that alone I am able to understand what the current market swing sizes are, therefore giving me a scale of relativity to judge the future waves by.

I see that the last wave of movement up was much weaker than the previous wave of movement up signifying a weakening of that trend. This is then followed by a wave of movement down with is much more powerful that the previous wave of movement down (the pullback on the TL) AND it broke the previous swing low that was made on that TL.

It is at that point that you know you are waiting for a wave of movement up to reach an area of resistance that will help it maintain a lower high than the high created before the TL was broken. This will then give you the Lower Low Lower High scenario AFTER a TL break that is required for this type of trade... the Core Trade.

In this particular case I was waiting for price to come back to point A on the attached picture and give me some Indecision candles so I could find a trade but instead price pulled back to a different area and created a new area of Resistance which I have labelled point B on the attached picture.

Since point B was created as the new Resistance I then waited for the area to be re-tested and confirmed so I could enter a trade

Price came back and re-tested the area with a nice PinBar (please ask if you don't know what that is) and so at the time that PinBar closed I was able to find a price just below it to enter on, my SL would clearly be the new Resistance area and because we are following the lower low lower high scenario we are expecting another lower low, therefore aiming for a slightly higher low or equal low is playing it very safe.

It is at this point that you have an entry point plotted out, a SL and a TP also pre-planned (previous post picture), and you can now check to make sure you are not risking more than you are trying to gain (RR). Because this trade is going with the current trends direction in this example you are risking half the amount you are trying to gain and so this trade is an all systems go.

Thats about as detailed as I can get in typed words so please do ask questions about anything you don't understand.

EXTRA INFO:
This type of trade will work on any timeframe and you will always need a closed candle to decide on a trade. This means if you trade the H4 chart you only have to look at your charts once every 4 hours, if you trade an M30 chart you only have to look at your charts once every 30 minutes.. and so on

 

[tkpower8]

Re: An Example Trade

OK, so hopefully everyone is up to speed so far but I still want to break this first example down further because it is important that you understand every aspect of what you are doing. I am sorry this is a slow process but my experience in teaching has proven to me that this is the best way.

It is easy for people to tell you some way to find entries, but entering is only 1 piece of the puzzle if you wish to be successful on a consistent basis.

So looking at the same example again, everyone should understand how PA, SR, and TL's where used to intelligently find the trade.

Let's just take an even closer look at the exact entry point for the trade and why, the exact place for a SL and TP and why. There is a reason for everything you do, or at least there should be. This way when you are in a trade or just entering a trade there are no unanswered questions going on in you head. It is almost robotic because you know exactly what you are doing and why.

So in the picture I have outlined the Entry point, SL and TP once again.

The entry point was just below the Pinbar that had re-confirmed the new Resistance area and consequently what I believed would then be the Lower High that followed the Lower Low.

The SL was just above the newly confirmed Resistance area

The TP at a conservative level was a slightly Higher Low even though we were expecting a Lower Low due to the current PA and because even that level provided almost a 1:2 RR scenario which is very acceptable.

(in the next post I will explain the thought process during the trade)

 

[tkpower8]

Re: An Example Trade

Now that you are in the trade and you have an intelligent SL and TP, plus before you entered you made sure the RR was also intelligent.

How do you manage this trade also using just Price Action to make your decisions?

In this picture you will see I have looked down and to the left of price at the time of entry and found any "Obstacles" that may get in the way of the trade.

Point A is the first obstacle but it is too close to the entry point for my style of trading so it is ignored, if however you are a very safe player then this would be a good point to move your SL to Break Even (BE).

Point B is the next obstacle and this is where I moved my SL to BE, if you had already moved your SL to BE at Point A then Point B would be used to move you SL to actually lock in some profit.

Point C is of course the conservative TP initially mapped out. If you are a more aggressive trader then you would not actually place your TP at Point C but an Alert instead. This way if price was moving nice and fast you have a chance to grab some extra pips.

Advanced Note: As you will learn later Point C is also right before a HL Breakout trade that I keep my eye on as a place to add to my already entered swing position, this can only be achieved if you used an alert at your initially mapped out TP instead of a hard TP

 

[tkpower8]

Entry Triggers - Candlesticks

When it comes to candlesticks, the higher the timeframe the more powerful they become as a standalone tool. This is why they end up becoming part of my entry trigger. Since they are already a signal of their own, having them at the right location (judged by PA, SR, and TL's) makes them very powerful indeed.

I have simplified Candlesticks because there are so many names that people give them and only a few that I care for myself.

A Pinbar for me is simply a Candle that has a lot of wick and not much body, this way the name Pinbar for me covers what others call a Hammer, Hanging Man, Shooting Star, Inverted Hammer, Spinning Top, even Doji's really.

It is the Indecision I am interested in and although certain types of Pinbar are more powerful than others it can be generalized for simplicity at the beginner level.

The other Candle Patterns I look for are InsideBars, TweezerTops and Engulfing Patterns (always at the correct location)
*Engulfing patterns I ended up calling CeC's btw... candle eats candle.


I whipped this picture up to help simplify Candlesticks a little.

Don't forget that when we have the correct Candle Pattern at the correct location I then want that Pattern to be broken in the correct direction to enter the trade. This can be done via Pending Orders and you do not have to stare at the charts.

 

[tkpower8]

I will wait at this point for interest in me going on or questions on what I have covered so far.

 

[gamma]

Useful info here.

When you talk about inside bar candles do you class these as indecision candles as well?

 

[tkpower8]

Useful info here.

When you talk about inside bar candles do you class these as indecision candles as well?

The simple answer is yes but of course it does go a bit deeper.

I am basically using PA, SR and TL's to determine good locations for price to react.
I then look for Indecision Candles to confirm that price is reacting at that location,
and finally check for psych levels and judge RR before placing my pending order.

When it comes to the Inside Bar in particular I will trade it in the direction that I believe price is going, determined by PA, SR and TL's... BUT I also like it when an Inside Bar first breaks in the opposite direction of what I am waiting for and then comes back in my direction (without breaking my SR zone of course)... This is not required though, it's just a nice power up.

Also, there are not always TL's present because I do not place them unless there is obvious Trend, when there is no TL I just use PA and SR to determine the locations I am looking for Indecision Candles.

If this thread picks up interest then the next trade I will touch on is the TL bounce backed up by PA and SR, followed by Indecision Candles broken in the correct direction and then of course good RR.

 

[jbu001]

I hope this thread does indeed pick up interest, I seem to have fallen into the trap of over-complicating my charts with MACD's, stochs etc and need to get back to basics, and profits!
John

 

[TheBramble]

There's nothing wrong with Stochs and MACDs if they help you trade well.

Don't get brain-washed into thinking there's just one right way or just one right set of tools.

 

[theroguetrader]

(a) - confluence

(b) - with the trend - sell on the break of the low of the pin - (aim for 2/3 x ur risk) .. !!

 

[tkpower8]

There's nothing wrong with Stochs and MACDs if they help you trade well.

Don't get brain-washed into thinking there's just one right way or just one right set of tools.

If something works for you then obviously use it but there is nothing you can't see with price so a MACD or Stoch is just a crutch.

All Indicators are lagging and will never compare to Pure Price Action

 

[tkpower8]

(a) - confluence

(b) - with the trend - sell on the break of the low of the pin - (aim for 2/3 x ur risk) .. !!

Very Nice PinBar set-up to confirm Support Area

 

[timsk]

If something works for you then obviously use it but there is nothing you can't see with price so a MACD or Stoch is just a crutch.

All Indicators are lagging and will never compare to Pure Price Action

Hi tkpower8,
I beg to differ.


I understand and accept the views of the anti-indicator brigade. Many of their criticisms of indicators are valid. Unfortunately, the most common one they love to make is that all indicators are lagging and that none of them tell you anything that can not be deemed from price alone. This is completely wrong.

Before I explain why, I'll define what I mean by the term 'indicator'. For me, it is any visual tool displayed graphically (e.g a line, candle or histogram) - other than price itself. Okay, first I'll address the issue of lagging - or not - and then I'll show how some indicators do indeed provide information that could not possibly be gleaned from price alone.

Lagging Indicators
It's true that many indicators are lagging, good examples being moving averages and MACD. The anti-indicator lobby use the term lagging pejoratively - as if there is something intrinsically wrong with the indicator. On the contrary, there's nothing wrong with it at all. In fact, for trend traders who use say - moving averages (MA), it's a very important characteristic. They need to be sure they're joining a trend once it's firmly established - not before the old one has finished. Critics point out - quite rightly - that indicators like MACD and MAs are useless in rangebound markets and traders who use them will lose money. This is a criticism of the trader's inappropriate use of the indicator(s) - rather than of the indicators themselves. Any tool used wrongly or inappropriately will yield poor results. Try cutting a piece of wood with a hammer or banging in a nail with a saw and see what happens.

Leading Indicators
A typical example of leading indicators are oscillators that measure overbought or oversold conditions. Critics will argue that these are pretty useless in a trending market. My response is the same as previously: know your indicator(s) - what its limitations are and when to use it / not use it etc. My personal favourite is RSI, which does exactly what it says on the tin in a rangebound market. If you try and sell an overbought condition in a strong uptrend - you'll likely come unstuck and lose money. That's your fault for using the wrong tool for the job, it's not the fault of RSI.

Price Action Contains Everything
The last point is this belief that price action contains all the information that indicators contain. This only applies to indicators that are calculated on the OHLC of price. Many aren't. I trade e-mini futures and rely heavily on 2 'indicators' that don't do this: $Tick and bid/ask delta. They are very much leading indicators too, often giving me a heads up of a change in direction long before it prints on the price chart.

To conclude, indicators have their flaws and to rely on them to heavily without understanding how they work and when to use them / not use them will cause all kinds of problems. However, the biggest flaws reside with the trader who hopes, wishes and expects the indicator to something it's not designed to do. And that's a very different kettle of fish!
Tim.

 

[kimo'sabby]

View attachment untitled.bmp


Here's my repeated pattern, it's a winner. (i'm only 6 years old btw)

 

[kimo'sabby]

View attachment cp.bmp


Here's another work of art (remember Take Art, with Tony Hart and Morph?). This repeated pattern is golden.